asset finance - business car finance

Business car finance

This guide provides you with everything you need to know about financing a vehicle.

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What is business car finance?

Business car finance refers to the various financial arrangements and methods that businesses use to acquire a vehicle or car for their operations. It's a way for businesses to obtain the vehicles they need, without making an upfront full payment, similar to personal car financing. 

There are various business car finance options that are designed to accommodate the specific needs and financial situations of different businesses. Car finance can make it far easier to manage a business’ cash flow, while still accessing the vehicles and assets needed.

Types of vehicle finance

Business contract hire

Business contract hire is a type of leasing arrangement that allows a business to access vehicles without the need for upfront purchase. In a business contract hire agreement, a company leases a vehicle for a fixed period, typically 2 to 5 years, in exchange for regular rental payments. A business can use the vehicle, whilst the ownership remains with the lender. 
It allows for tax benefits, as the business can reclaim part or all of the VAT on the vehicle.


Hire purchase

With hire purchase, the business pays an initial deposit (usually around 10% of the vehicle’s value), followed by regular payments that include interest charges. Unlike leasing arrangements, hire purchase leads to ownership of the asset once all payments have been made. This allows businesses to manage their cash flow effectively, enjoy the benefits of ownership, and potentially claim capital allowances.


Finance lease 

A finance lease involves paying a monthly fee to use a vehicle for an agreed-upon period, typically two to four years. At the end of the lease term, you return the vehicle to the lender. This option does not provide ownership, but it can be more affordable and allows you to regularly upgrade to newer models. A finance lease transfers responsibility of the maintenance, insurance and other costs associated with the vehicle to the business. If the business is VAT registered, they will be able to claim on the VAT payments. 

Can I get a car on finance with bad credit? 

You could still get a business car loan with a poor business credit score. As the car loan will be secured against the asset, some lenders put less weight on the business credit score. However with bad credit, you may be subject to more expensive interest rates and the lender could require you to put down a larger deposit.

Tax considerations for business car finance 

Car finance can offer your business tax benefits. On cars that you purchase for your business, you could claim capital allowances. Claiming capital allowances reduces your VAT bill as you can deduct part of the value of the car from your profits before tax. The amount you can claim as capital allowances may depend on factors such as the vehicle's CO2 emissions and whether it's a new or used vehicle.

You can find out more about capital allowances from the government website. 

How much will business car finance cost?

The total amount your car finance costs will include the value of the vehicle, plus any interest and fees. 

How much you repay each month will depend on a number of factors. If you paid an upfront deposit, then the overall loan amount will be reduced. 

Your interest rates will also affect your monthly repayments. Which rates your business can access will depend on factors such as your financial health, how strong your business turnover and profits are and whether you have a good business credit score

Commercial vehicle finance checklist

If you're looking to purchase a car using vehcile finance, use the following checklist: 

  • Decide the vehicle you want to purchase 
  • Have a budget in mind, think about your monthly repayments and how long you want the term length to be 
  • Work with your accountant to create a cashflow forecast - it will help you understand how your cash flow is looking and provide the lender with a picture of your financial position that is more up to date and accurate than your financial statements.
  • Prepare an assets and liabilities statement to show the lender any assets that you own and any current debts .
  • Provide any security you’re willing to offer, such as a personal guarantee. In most cases of vehicle finance, the lender will use the vehicle you are purchasing as security for the lease. 
  • Decide what type of loan you want. Before making a decision, you can speak and work with a funding specialist who can help to determine the option that works best for your business.